A US judge has cleared the way for the reimbursement of billions of dollars to former customers of the bankrupt crypto exchange FTX.

At a court hearing in Wilmington, Delaware, Judge John Dorsey on Monday gave final approval to FTX’s reorganization plan, the terms of which had previously been submitted to creditors and approved by a landslide.

“I think this is a model case for how to handle a very complex Chapter 11 proceeding,” Dorsey said. “I applaud everyone involved in the negotiation process.”

FTX filed for bankruptcy in November 2022 after running out of money to process customer withdrawals. Billions of dollars of FTX customer deposits were missing. The money, a jury later found, had ended up in a sister company and spent on high-risk trading, venture betting, debt repayments, personal loans, political donations, luxury real estate and other illegal transactions.

A year later, FTX founder Sam Bankman-Fried was convicted of multiple fraud and conspiracy charges and subsequently sentenced to 25 years in prison. In September, co-conspirator Caroline Ellison was given a two-year prison sentence after testifying at Bankman-Fried’s trial.

The FTX bankruptcy plan was first proposed in May and lays out a path to full repayment, plus interest, for former FTX customers – a level of recovery rarely seen in bankruptcies. “In general, anything above 100 cents on the dollar is almost miraculous,” said Yesha Yadav, associate dean and bankruptcy specialist at Vanderbilt University Law School. “What often happens is that unsecured creditors get pennies on the dollar, if they’re lucky. The expectation is that it is a process of scarcity.”

In this case, however, the administrators of the FTX estate were able to recover billions of dollars by liquidating investments from the exchange’s venture capital arm, FTX Ventures, and its sister company, Alameda Research, along with other assets. A rise in the price of cryptocurrencies in the period since FTX filed for bankruptcy, meanwhile, increased the value of the coins left in the exchange fund.

Under the plan, government agencies in the United States – including the Internal Revenue Service and the Commodities and Futures Trading Commission – have agreed to suspend high-value claims against FTX until creditors are repaid (although the IRS will require an upfront payment of $200 million will receive). as part of the settlement).

Even holders of FTX stock, typically the last to be repaid in a bankruptcy, can get back some of their initial investment — collectively up to $230 million — paid for the use of money recovered by the Justice Department through the prosecution from FTX insiders. .

But despite the abnormally high expected recovery, some creditors believe they are still getting a raw deal because of the way their claims have been valued.

Many customers held crypto assets like bitcoin on the FTX platform, but through a process called dollarization, which is common in bankruptcies, their claims have instead been assigned a dollar value based on the price of those assets on the date of the bankruptcy petition. When the FTX fell, the crypto market was in the doldrums, but it has since risen to new all-time highs, meaning some customer claims would be much more valuable if the refund were tied to the current value of crypto assets. Therefore, while dollarization is correct under bankruptcy law, saying returns are over 100 percent is simply wrong, Yadav says. “For the average person, it’s far from that.”